American Well - Earnings Call - Q1 2025

Transcript

Operator (participant)

Good day, and thank you for standing by. Welcome to the Amwell First Quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Sue Dooley, Head of Investor Relations for Amwell. Please go ahead.

Sue Dooley (Head of Investor Relations)

Hello, everyone. Welcome to Amwell's conference call to discuss our first fiscal quarter of 2025. This is Sue Dooley of Amwell Investor Relations. Joining me today are Amwell's Chairman and CEO, Dr. Ido Schoenberg, and Mark Hirschhorn, our CFO and Chief Operating Officer. Earlier today, we distributed a press release detailing our announcement. Our earnings report is posted on our website at investors.amwell.com and is also available through normal news sources. This conference call is being webcast live on the IR page of our website, where a replay will be archived.

Before we begin our prepared remarks, I'd like to take this opportunity to remind you that during the call, we'll make forward-looking statements regarding projected operating results and anticipated market opportunities. This forward-looking information is subject to the risks and uncertainties described in our filings with the SEC. Actual results or events may differ materially. Except as required by law, we undertake no obligation to update or revise these forward-looking statements. On the call, we'll refer to both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures is provided in our posted earnings release. With that, I would like to turn the call over to Ido.

Ido Schoenberg (Chairman and CEO)

Thank you, Sue, and good evening, everyone. I'm pleased to report that Q1 was an impactful quarter for our company, one that provided a strong start to an important year for us. As a reminder, on our last call, we shared our guidance for a big mix shift in software revenue in 2025 that will help us achieve our positive cash flow from operations goal in 2026. We execute on with a strong sense of purpose. In a dynamic time for our industry, our goals remain steady, and our mission to transform healthcare remains as relevant as ever. Our solution is built to deliver on goals that are universal and timeless, enabling our clients to leverage technology-enabled care for efficiency and to improve outcomes with better access to more affordable, convenient, and effective care.

To begin tonight's call, I'd like to provide you with some more detail on our performance in Q1 before discussing what we're seeing in the markets. Mark will review our financial results and our outlook for the second quarter of the year. First, together with our latest partners, we advance our progress in the staged launch of our full solution across the Military Health System. We are inspired by the alignment of our mission with that of the LPDH as we collaborate to achieve important and enduring goals for members of the military and their families. With efficiency defining the urgent agenda of the present day, we see a natural fit for our value proposition. We are hopeful this partnership positions us to be a major contributor in the federal market landscape for many years.

Second, we made significant progress in our path to achieving positive cash flow from operations in 2026. These initiatives are showing up in a steady, better-than-expected quarterly improvement in our adjusted EBITDA, and this is the case again also in Q1. We are driving for efficiency with ongoing focused cost reduction measures while improving our quality of revenue and profit margins. We have successfully increased our mix of subscription software revenues and aligned our costs. We are targeting meaningful margin expansion this year, and with another strong EBITDA performance this quarter, we take a step closer to our goal to improve our adjusted EBITDA by over 60% this year as compared to 2024. In other news, Dan Zamanski joins Amwell this quarter as our Chief Product and Technology Officer. Dan comes to us from Amazon Healthcare.

His proven track record leading global and cross-functional teams responsible for platform services, artificial intelligence, and product management gives him the right mix of experience to drive synergies and support our path to profitable growth. Dan is already an excellent addition to our leadership team as we continue to sharpen our operational focus on key priorities, driving efficiencies, optimizing cash flow, and fueling growth. Continuing with Q1 highlights, here are some more details on our performance: Our teams are working well with our latest partners. As of early April, the entire global military health system enterprise is now using our platform for virtual visits. This milestone puts us in a very strong strategic position as we continue to grow our programs. Patient and provider satisfaction on our platform is reported as very high, at well over 90%.

As we continue this important work of implementation, many of our programs are now fully deployed and extending their reach across the military health systems around the globe. Regarding this initiative, I would like to spend a moment updating you on deployment timing of our automated and digital behavioral health programs. With our solution now live across the entire military health system for scheduled visits, our dedicated teams are completing the work that precedes the go-lives in the remaining territories for these programs. We are on time and on budget with deliverables for this initiative. However, as a result of the top leadership transition at the DHA, we and our latest partners were asked to wait for the final confirmation from the new DHA director before completing these last-mile deployments. Reflecting this, we now expect that these remaining lives will happen in Q3 rather than Q2.

In our conversation with the DHA and latest leadership, both remain confident in the DHA's unwavering commitment to providing the high-quality care associated with the digital-first initiative. Importantly, our expectations are unchanged regarding the renewal of our contract with Leidos and the DHA, as indicated in the October 2024 intent to award that specifically names Amwell. Moving on to some highlights from our commercial growth organization. We had a healthy quarter of building pipeline, and we drove important client renewals across payer and provider clients. These included Penn State Health, the University of Chicago Medicine, and Northwell Health. Northwell continues to document measurable success with our Automated Emergency Room Discharge Program. On the heels of a big expansion in Q4, we also had a sizable renewal with the HSE in Ireland, which continues to improve access to care through its growing use of Digital Behavioral Health Programs.

On the heels of good progress in Q1, we continue into the year with momentum and focus, with market dynamics working in our favor. I would like to speak to these trends for a brief moment. Increasingly, we believe that the fractional care that people get in their day-to-day lives is going to shift dramatically from brick and mortar into technology-enabled care. Consumers are showing greater appetite to seek care online, and the inventory of technology-enabled care clinical programs is quickly expanding. While this change brings incredible opportunities, it also creates new complexities to solve for. First, payers and health systems struggle to make sure that consumer engagement is efficient, that care experience is streamlined, and that demand is matched with the right services. Services need to be covered, appropriate, and have demonstrated improved clinical and financial outcomes.

Second, clinical program vendors are challenged with high customer acquisition costs, and they need to integrate their offering with whole-person and even whole-population care. It's becoming harder and harder for them to independently show a viable business model offering a program around a single therapeutic area. That is exactly where Amwell Platform comes in. With our single unified platform for technology-enabled care, we believe we have cemented our role as the enabler of this movement. Here is how: First, we help payers and health systems offer a single unified member and patient experience that is attributed to their own trusted brand and features all their sponsored care programs. With a unified platform, payers and providers can offer exceptional consumer experience, helping individuals receive the most appropriate care in the simplest and most reliable way.

Leveraging our technology helps our clients optimize customer engagement costs and improve clinical and financial outcomes, making quality care more affordable and accessible to all. We also make it easier for our clients to document, analyze, and report whole-person outcomes across the full patient and member cohort and sub-cohorts. On our platform, payers and providers remain agile and flexible in offering the most effective programs at any given time. Our platform makes them future-ready so that as new innovative and AI-driven solutions become available, we make it simple to switch programs while maintaining a consistent experience. Second, we offer our own comprehensive array of out-of-the-box native and integrated Amwell clinical programs. These programs cover a big part of the care continuum, including urgent care, virtual primary care, behavioral health, and a growing number of specialty care programs.

With appropriate safeguards, we embed artificial intelligence, advanced automation, and other technologies to power exceptional user experience and better outcomes. The ecosystem of high-quality Amwell programs makes us a simpler choice for our clients, especially in comparison to point solution players. We help third-party clinical program innovators improve their market reach and stickiness by integrating their solution into our platform. Importantly, this provides a high-quality revenue source for Amwell as we grow together. The value of our platform approach to technology-enabled care is meaningful to all players, and we believe our large customer footprint, deep integrations, and vast deployments form a long-term bond with health organizations that make up a big part of the US ecosystem. In terms of market penetration, our client reach is significant, and we believe we are just getting started.

For almost two decades, we have proudly served some of the largest and most sophisticated healthcare organizations in the U.S. Yet, according to McKinsey and others, only a handful of percentage points of care is done online today. This is beginning to change in a very significant way, and our unified platform sits at the heart of a growing theme that embraces technology to drive outcomes and efficiency. We believe we are exceptionally well-positioned to take advantage of these market forces. We see this reflected in our conversations out in the market, in our growing pipeline for new business, and across our own clients where we are targeting an attractive opportunity for expansion growth. With that, I would like to turn the call over to Mark to review our financials and our guidance. Mark?

Mark Hirschhorn (CFO and COO)

Thank you, Ido, and good afternoon to everyone on the call.Tonight, I will walk you through a few operating metrics and financial results from the first quarter and then review our guidance. The financial highlights of our first quarter include progress toward our key strategic initiatives. Software revenue grew over 30% from Q1 of last year as we drove strategic client deployments, including the enterprise go-live of scheduled virtual visits across the global Military Health System, the most significant growth initiative in our company's history. Also, we accelerated our adjusted EBITDA improvements for the fourth quarter in a row as we continue to focus on increasing our software mix and aligning our cost structure with our revenue base.

Most importantly, as Ido highlighted, we have demonstrated continued progress with our most strategic objectives, specifically the staged launch of our full solution across the Military Health System and the cost initiatives that reinforce our confidence in our path to generating positive cash flows from operations during 2026. We have committed ourselves to executing these initiatives that will ultimately drive value to our company. Now let me share some of our Q1 financial results. Total revenue was $66.8 million for the quarter, which is 12% higher than Q1 of 2024. Normalizing to the sale of Amwell Psychiatric Care, first-quarter revenue was 25% higher than Q1 2024. Revenue mix here is a more important metric as subscription software revenue was 48% of total revenue at $32.2 million in Q1, up 30% from a year ago and compared to $37 million in Q4.

You will remember that in Q4, our software revenue benefited from a material uplift in subscription software revenue related to deploying our solution across the Military Health System. Turning to visit metrics, we completed approximately 1.3 million visits in the first quarter, which is approximately 23% lower than a year ago. Normalizing for APC, this was 21% lower than last year. Visits in the first quarter were in line with our adjusted expectations for the quarter. AMG's first-quarter visit revenue trended 14.3% lower than last year at $26.6 million. Normalizing for APC, however, visits were higher by 6.6% than a year ago. Average revenue per visit was $71, which is 8% lower this quarter compared to last year's Q1, but revenue per visit was 8% higher than last year after normalizing for APC.

This increase was driven by a mix shift within AMG visits towards virtual primary care and specialty programs. Our AMG business continues to be foundational to our overall business. It is highly visible to us and is strategically important to enabling client expansions and new client wins and for the overall support of our efforts to grow recurring software revenues. Our services and CarePoint revenue was $8 million for the quarter versus $4.9 million last quarter. The nature of our business drives variable revenues due to consumer buying patterns for marketing programs and for CarePoints, as well as the timing of professional service milestones that precede deployments. Turning now to gross profit, which continues to improve. Our quarter one gross margin was 52.8%, higher by 4.3 percentage points compared to Q4, reflecting higher software mix and cost initiatives. Onto operating expenses.

Our consistent efforts in reducing and aligning our costs are showing results down the line. We continue to make substantial progress towards normalizing R&D spending. While maintaining our focus on deploying our solution for the DHA, our R&D expenses in Q1 were $22.1 million. This represents a decline of approximately 17% compared to the $26.7 million we spent in Q1 of 2024. Sales and marketing expenses were $12.6 million. This is approximately 18% lower than last quarter and nearly 51% lower than last year's comparable quarter. G&A expenses were $23.2 million, approximately 33% lower than last quarter and nearly 29% lower than last year's comparable quarter. G&A remains a meaningful focus of our ongoing cost initiatives. We have now completed another consecutive quarter that underscores our key strategic initiatives.

We are delivering on the promise of growing our subscription software revenue while being well on our way to reshaping our foundational cost basis. As a result, adjusted EBITDA for the quarter was negative $12.2 million versus negative $45.6 million in Q1 2024. Finally, with respect to cash and liquidity, we ended the first quarter with $222 million in cash and marketable securities with zero debt. I would like to turn to our guidance for 2025. This year, the high-margin revenue growth we are guiding for is underscored by our focus on expanding our mix of subscription software revenues, taking a conservative view on visit volumes while further reducing costs. With this in mind, we are reiterating our annual revenue and adjusted EBITDA guidance for 2025. We continue to expect revenue for the full year 2025 to be in the range of $250-$260 million.

As a reminder, this revenue guidance excludes the more than $25 million that we would have expected from APC in 2025. Importantly, with the most strategic elements of our revenue base intact, we anticipate subscription revenue to meaningfully grow to represent nearly 60% of total 2025 revenues. Our range for AMG visits is between 1.3 million and 1.35 million visits. We expect our 2025 adjusted EBITDA to be in the range of negative $55 million to negative $45 million, which demonstrates a 60% improvement year-over-year. Here's some additional context around our assumptions. We are on track to further reduce our R&D expense by more than 10% this year versus 2024, as we streamline and complete the bulk of our software configuration work for our existing commitments. Overall, we expect sales and marketing costs to decline over 25% year-over-year.

We expect to reduce our G&A expense beyond 20% for the year as we continue to organize the company around a new lower-cost structure. I would like to repeat Ido's comment that our expectations are unchanged regarding the renewal of our contract with Leidos for the DHA, as indicated in the October 2024 intent to award that specifically names Amwell. Next, our guidance for Q2. We expect revenue for the second quarter of 2025 to be in the range of $62-$67 million. As to adjusted EBITDA, we expect our Q2 adjusted EBITDA to be in the range of negative $12 to negative $10 million. There are some additional revenue timing-related dynamics we want to call to your attention.

Ido previously mentioned that as a result of the top leadership transition at the DHA, we and our Leidos partners were asked to wait for final confirmation from the new DHA director before completing these last deployments. Reflecting this, we now expect that the remaining enterprise go-lives of our automated and digital behavioral health programs will happen in Q3 rather than in Q2. In Q3, we anticipate a one-time step-up in DHA software revenue, normalizing slightly below the Q3 level into Q4, with total software revenue ending the year at approximately 60% of total revenue. Wrapping up, we are encouraged by the strides we have made in our business, and in the first quarter, we made solid progress toward the goals which support our confidence in our path to generating positive cash flows from operations during 2026.

We continue to anticipate that Amwell will end 2025 with approximately $190 million in cash and in excess of $150 million in cash at year-end 2026. There's a great energetic team here at Amwell that is fully aligned with delivering the novel healthcare products, services, and efficiencies that we successfully deliver to our clients every single day. Thank you for participating this afternoon, and with that, I'd like to turn the call back to Ido for some closing remarks. Ido?

Ido Schoenberg (Chairman and CEO)

Thank you, Mark. Before we take your questions, I'd like to briefly wrap up. We entered Q2 with a strong sense of purpose and unprecedented focus on our key operational initiatives for the year, which center on unlocking value in our company and pursuing our mission.

To summarize, we are delivering, with our Leidos partners, the promise of the Military Health System digital-first initiative, a model for modernizing healthcare and the value of technology-enabled care. We have focused our strategy to fuel higher quality revenue mix and to achieve the promise of our vision. As we bring our unique, differentiated solution into a very large yet under-penetrated market opportunity, we are set to achieve our goal of positive cash flow from operations during 2026, as well as for long-term profitable growth for many years to come. With that, I would like to open the call to questions. Operator, please go ahead. Thank you.

Operator (participant)

Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. In the interest of time, we ask that you please limit yourself to one question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Craig Hettenbach with Morgan Stanley. Your line is now open.

Craig Hettenbach (Stock Analyst)

Great. Thank you. Just outside of the DHA, can you talk about just bookings trends for Converge more broadly? And then also just with the hire of Dan from Amazon, perhaps some things he can leverage from his experience or key strategic priorities as he gets on board there.

Mark Hirschhorn (CFO and COO)

Absolutely, Craig. It's good to hear your voice and thank you for the question. In general, we see very good receptivity to the Amwell platform in its new format in the market well beyond the DHA. Overall, there is growing understanding and agreement that more and more people are going to go online and they would need a singular experience to match them with a growing number of clinical programs and the data infrastructure to report on those programs.

We deployed it in very large scale in some of the largest organizations, including the DHA, Amwell, and others, but we also deployed it in smaller scale opportunities generating very similar value, all to mid-size and even smaller customers. All that results with a product that is much more focused, proven, and scalable is not lost on people as they think about creating a technology-enabled care infrastructure for years to come. A lot of the activity is happening as we speak and will be more apparent to more people as we move forward. As to Dan joining, Dan was a very well-known leader in Amazon.

He founded Health AI in AWS and then led the platforms for Amazon. He brings a very broad network of expertise and capabilities, including high proficiency in AI. With him and other talent in the company and some new relationships inside and outside the company, we are transforming our offering with some new technologies. The key focus areas for Dan and Will's product include streamlining the consumer experience, improving the way we match people with a growing number of clinical programs, and the bidirectional data we exchange in order to further optimize their results.

Finally, the data infrastructure to create sophisticated analytics that help our sponsors understand the value that is generated by those programs. With Dan, Mark, and other new leaders in the company, I know we have what we need in order to very efficiently realize the mission of the Amwell platform and grow successfully going forward in the market.

Craig Hettenbach (Stock Analyst)

Got it. Thanks for all that.

Operator (participant)

Thank you. Our next question comes from the line of Charles Rye with TD Cowan. Your line is now open.

Charles Rye (Md and Senior Research Analyst)

Thanks for taking the questions. Hey, just a couple of quick questions around the results here. Really, as we think about the guidance, obviously great performance in the quarter, particularly in terms of margins and managing the EBITDA loss here. Is this the right gross margin rate? You had guided north of 50%. Obviously, you did more like 53% here in the quarter.

Mark, is this the right run rate we should think about for the rest of the year? Could we expect that to get a little bit better here? It looks like a lot of the revenue was from CarePoints in the quarter, which I would imagine is lower margin. If we back that out, does it seem like our software gross margins are running closer to 90% or so? Is that the right way to think of it?

Mark Hirschhorn (CFO and COO)

You're on the right track, Charles. It's going to be an improving number as the software revenues represent a greater percentage of total revenues. You're exactly right. Timing of CarePoints would bring that overall number down. We should see that impact from the, let's call it, 75-90% software revenue margins that we would profile going out over the next several quarters. As long as the timing hits appropriately, we should continue to see quarter-over-quarter increases in margin.

Charles Rye (Md and Senior Research Analyst)

If we would expect then loss to be improving, then any reason not to adjust maybe the EBITDA guide given where we're starting off here and what you've guided for the second quarter? Thanks.

Mark Hirschhorn (CFO and COO)

We're not changing the EBITDA guide principally because we still have that considerable amount of revenue that we need to generate over the remaining quarters of this year coming in with regard to the expansion work. We're very confident that the contract extension is now within a month or two of being finalized. We're far along in that contract negotiation. Again, high degree of confidence with respect to that. It's the expansion that Ido noted, and I also noted in the prepared remarks that from a conservative view of 2Q to 2023, we wouldn't go ahead and change any of those EBITDA ranges today.

Charles Rye (Md and Senior Research Analyst)

Okay. That's helpful. Thanks.

Mark Hirschhorn (CFO and COO)

Sure.

Operator (participant)

Thank you. Our next question comes from the line of Jailendra Singh with Truist. Your line is now open.

Jailendra Singh (Managing Director)

Thank you. Thanks for taking my questions. All the macro noise, tariff, and economic uncertainty, I was curious, have you seen any impact on your sales timeline as health systems continue to evaluate their IT budgets? Just curious how have been your conversations, at least in the last couple of months. Related to that, can you guys talk about your direct tariff exposure?

Ido Schoenberg (Chairman and CEO)

Absolutely. I'll take it first, and then I'll turn to Mark for his point of view. Essentially, there is a palpable pain in the market. People are uncertain, and people are worried in a way of when they think about their financial viability going forward, that that includes many of our customers. The encouraging part is that they see us as part of the solution to this issue. The Amwell platform is all about efficiency. It's all about saving. It's all about growing revenue. There are a long list of examples also on our website to show you for it. The ROI for implementing Amwell platform is very significant in the way of efficiency, savings, growth, things of that nature. Therefore, we actually see the trend becoming accelerating rather than decelerating despite the overall market sentiment and headwind.

Jailendra Singh (Managing Director)

Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Stan Berenshteyn with Wells Fargo Securities. Your line is now open.

Stan Berenshteyn (Vice President and Senior Equity Research Analyst)

Thanks for taking my questions. Maybe just a couple on the government side. In terms of the DHA contract, assuming it's signed, is there any chance of the economics changing at all, or is the expectation that they're going to be somewhat similar to the current contract? Tangentially, you previously had spoken about six possible government-related opportunities that you're pursuing. Just curious, any updates there? Anything moving along in that direction? Thank you.

Mark Hirschhorn (CFO and COO)

Hi, Stan. It's Mark. With respect to the contract extension, we don't really anticipate any material changes in the economics that we provided to Leidos over the past year. You need to recall that that contract is relatively recent. Essentially, it's in its first year of working, especially at the enterprise level, which is certainly in quarters one or two. No indication there that there'd be anything significant. I think for the opportunities, perhaps I'll hand it over to Ido.

Ido Schoenberg (Chairman and CEO)

Thank you, Mark. Stan, some people underestimate the enormity of what took place in the last couple of years implementing the DHA. It was a giant undertaking for us, and we went through it. We are now live, as I mentioned earlier, across the globe, enterprise for the Military Health System. That required us to migrate our platform to the GovCloud and check an infinite number of boxes and requirements, which we checked and complied with. It works now well, and it works at scale. The impact that we have on the Military Health System should not be different than other similar government entities. Our partner is very proficient in that environment. Leidos serves so many other organizations.

We believe that with this good execution in the sense that, as far as we're concerned, we were always on time and on budget, and we generated the efficiency for our customers here. That track record that we're very proud of is going to be very helpful as we compete for other opportunities in the sector.

Stan Berenshteyn (Vice President and Senior Equity Research Analyst)

Got it. Thanks so much.

Operator (participant)

Thank you. Our next question comes from the line of Eric Percher with Nephron. Your line is now open.

Eric Percher (Co-founder and Senior Research Analyst)

Thank you. I thought I heard this asked, but I'm not sure I heard an answer on the tariff question. Can you just speak to any exposure across the business and maybe specifically on the endpoints?

Mark Hirschhorn (CFO and COO)

Sure. Overall, our direct exposure to tariffs is minimal or nonexistent. As you may know, we no longer manufacture most of our hardware. Most of our hardware comes from third parties, and the hardware business is generally a very small part of our business today. Our business is software that's manufactured mostly in the United States and very proudly. Therefore, we don't see a cost issue for us directly. Having said that, tariffs obviously impact the sentiment in the market overall and do create some problems for our customers as it relates to their relationship with other suppliers. However, as I mentioned earlier, we are really conceived as part of a solution, adding efficiency, growing revenue for our customers. In that environment, there is a good ROI for investing in Amwell. Maybe very briefly, just to give you some very quick examples in way of reducing costs and driving revenues.

In Well Start, we just had a study show a 35% increase in net revenue for virtual consult. The coworker that I mentioned, the prepared remarks, had a $1 million cost reduction just with one ED program that created 30 fewer nurses' calls per day for them, and those were reduced colonoscopy no-show by 48%. Another area is that we show a path to very significant improvement in outcomes. Again, very quick example. In the NHS, we helped change wait times from 16 weeks for psychiatric care to 1 week. That is very dramatic, and the value is very well recognized there. Even in the U.S., with Horizon, they reported a 40% reduction in patient waiting time for psychiatric care. We have very high sentiment with providers, and burnout of clinical staff, productivity of a network is a giant topic for our customers.

The fact that we are fully embedded in the EHR, the fact that we help prepare and match patients with the right doctors, and much better prepared in an automated fashion, and providing additional access to different specialists, these are just examples of why we believe that our platform still continues to be very relevant and in demand and resonating even in those times of great uncertainty. Rising tariffs is a good example of that.

Eric Percher (Co-founder and Senior Research Analyst)

Thanks for the detail.

Operator (participant)

Thank you. Our next question comes from the line of Kevin Caliendo with UBS. Your line is now open.

Jack Sunshine (Managing Director and Equity Research Analyst)

Hey, guys. This is Jack Sunshine for Kevin Caliendo. Thanks for taking the questions. I know you're talking more about the contract extension through more of a conservative lens, but maybe if that renewal did not come to fruition, are you confident that you will still break even on a free cash flow basis next year without it, or is that contract needed for it? Maybe just as a quick follow-up, it might be a little too early, but do you have any updates on how the selling season has progressed thus far? Thanks.

Ido Schoenberg (Chairman and CEO)

Jack, we are quite certain that the contract will be extended. We have no reason to believe, based on where we stand and the many reasons I gave earlier in the call, that it will not extend. It is a bit of a theoretical situation. There is always a theoretical chance, but we believe it's very, very small. Overall, in our work in the market, we have a product that is extremely well-defined. We divested APC, as you know. We did some other measures.

Our core offering today is high value, high margin, high quality, with very strong right to win in the different market segments that we serve. That's not lost in the market. We see it in how people react to our fees. We see it in sales meetings, and we see it in some of the results that you saw today and hopefully will continue to see over the foreseeable future. That's how we feel about it. Mark, I don't know if you have anything to add.

Mark Hirschhorn (CFO and COO)

Or Jack, both of you, actually. I would add that we clearly are in a position today to rely on that contract extension. Again, we have every reason to believe that we are going to see that extended based on where we stand today with our partners. If that did not come to fruition, we would have to pivot in order to reach a cash flow from break-even operations number in 2026. Again, that would be a worst-case scenario and not something that we actively plan for, but it could be viewed as an existential threat.

Operator (participant)

Thank you. As a reminder, to ask a question at this time, please press star 11 on your touch-tone telephone. Our next question comes from the line of David Larson with BTIG. Your line is now open.

David Larson (Managing Director and Senior Equity Research Analyst)

Hi. Congratulations on the good quarter. Can you just remind us how much revenue in the quarter came from the Defense Health Agency contract? Then what will that figure be on an annualized basis by, say, Q4 of 2025? Thank you.

Ido Schoenberg (Chairman and CEO)

Hi. Thanks for those nice remarks. We do not break out the exact contribution as we have guided in the past that that contract is expected to represent our largest revenue component on an annualized basis when it is full enterprise. We are not yet at full enterprise for all three products. As we noted, we are there for scheduled visits, and we are waiting for the extension of the automated care and behavioral health. We did have a quarter and a full quarter of the portion of revenue that comes about from our enterprise-wide revenue for scheduled visits.

David Larson (Managing Director and Senior Equity Research Analyst)

Great. Can you maybe just talk a little bit more about the usage from the Defense Health Agency? How many lives actually use the platform in one queue across how many countries or regions? What was the nature of the services? Is it all behavioral health, or are there other things in there as well? Does it include military families as well, their dependents? What I'm getting at is it seems to me like they can't cancel the contract, right? If the military is dependent on this for large amounts of their care, if they were to cancel that, that would be optically and medically a very difficult thing to do. Just any color around the usage of the platform would be great. Thank you.

Mark Hirschhorn (CFO and COO)

Hi, David. Obviously, we cannot speak on behalf of the Military Health System and not even on behalf of Leidos, and what we can say is very restricted. You are right to suggest, and it was public information, that the audience for our project is huge. It's 9.6 million people in the military, including the men and women in uniform and their families. The visits, the telehealth visits, the scheduled visits that are now live enterprise is serving all of them, and we are connecting all of them with the providers at large of the military, military providers. The different use cases are very diversified and include different things.

As it relates to chronic care programs and behavioral health, which is such a big area of focus of the military, we are live in the five regions. We already followed what we did with scheduled visits before. That's the initial launching pad, if you will, of the military. Following that, we fully expect to go enterprise, especially as the new head of the DHA takes place. I mentioned earlier that we see very high satisfaction scores. We see efficiency. We have reason to believe that the client and our partner are very pleased with what they see. We obviously do not speak on their behalf. That is why I said earlier that we believe that the likelihood of renewal is very, very high.

It is not 100% in theory, but we believe that there was a giant leap to get here. It is performing as planned. It is generating very important results. Just to give an example, the new administration talked about their goals for the military health system, and they mentioned four pillars. We believe we check all those four boxes. The first pillar was readiness first, ensuring that service members have access to world-class healthcare. Obviously, we check that box. The second initiative is medical modernization, advancing digital health, which, of course, we do. The third one is force optimization and strengthening the medical workforce.

We are embedded inside their EHR, the Oracle EHR, connecting them to other patients, improving their lifestyle, improving their efficiency. Overall, we are very relevant there. The last one is really encouraging the military to forge more meaningful strategic partnerships as enhancing collaboration across the DOD, VA, and, of course, MHS with the private sector. We are also relevant in that box. With this track record, with the fact that we are very well positioned to really focus on efficiency, which is such a key element in the new administration, we believe that we have a long future ahead of us together serving this client, which we cannot be more proud of.

David Larson (Managing Director and Senior Equity Research Analyst)

Thanks very much. I'll hop back on the queue.

Operator (participant)

Thank you. Our last question comes from the line of Ryan McDonald with Needham. Your line is now open.

Matt Shea (Research Analyst)

Hey, guys. This is Matt Shea on for Ryan. Thanks for taking the questions and congrats on the strong quarter here. Curious if there's anything on the churn side to call out in the quarter. As we think about the remainder of the year, how are you thinking about intentional churn from here? Do you feel good about the core client base at this point or still some less profitable contracts to clean up? Just circling back to the selling season question, any color on the selling season would be great. Any differences you're seeing in terms of demand from, say, health systems versus payers? Thanks, guys.

Mark Hirschhorn (CFO and COO)

Hi Matt. It's Mark. With regard to your first question on churn, we had budgeted for a very conservative churn number, and clearly, we were very pleased with the fact that churn came in much lower than we anticipated. That actually helped to contribute to the increase in the bottom line. We had some challenging years prior to this year, and fortunately, I think most of those heavy churn periods are behind us. We continue to budget conservatively, but there's been nothing that we've seen now that we're five months in, nothing that we've seen to indicate that there's going to be any change in that assumption.

On the pipeline growth, on the attractiveness of what we're bringing to the market, we have also seen significant activity, far greater than last year, on both the payer side and on the health system side. We're currently involved in a number of RFPs, RFIs. The amount of interest in the product in these different sectors has, fortunately, been intensified over the last few months. Contrary to, I think, what a lot of people are talking about with respect to constraint, as tariffs and other indicators have put some apprehension in people's minds, we seem to be in a good place with prospects that are interested in pursuing our products.

Matt Shea (Research Analyst)

That's great. Thanks, Mark.

Mark Hirschhorn (CFO and COO)

You're welcome.

Operator (participant)

Thank you. This concludes the question-and-answer session. I would now like to turn the call back over to Ido Schoenberg for closing remarks.

Ido Schoenberg (Chairman and CEO)

I want to thank everyone for their time. Thank you very much for your continued interest in Amwell, and look forward to talking with you offline. Take care.

Operator (participant)

This concludes today's conference call. Thank you for your participation. You may now disconnect.